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  /  Editor's Pick   /  The stock market dip may be my once-in-a-decade chance to buy cheap FTSE 100 dividend shares

The stock market dip may be my once-in-a-decade chance to buy cheap FTSE 100 dividend shares

Group of young friends toasting each other with beers in a pub

I’m always on the hunt for bargain-priced FTSE 100 dividend shares but I can’t remember being as keen to buy them as I am today. I see a lot of value out there for long-term buy-and-hold investors like me, and I’m keen to take advantage while this opportunity is there.

In February, the index broke through the 8,000 barrier for the first time. Sadly, its strong start to the year didn’t last. Today it trades at 7,338.58, having dropped a devilish 666 points in the interim. My consolation is that the type of stocks I like to buy are on average 8.3% cheaper than they were back then.

Won’t be cheap forever

The FTSE 100 has been trading around the 7,000 mark for most of the last decade, with a sharp downwards lurch during the 2020 Covid crash. That was a wonderful buying opportunity, too, but investors had to be super-brave to take advantage of it. 

We have multiple worries today, but at least we’re being allowed out of our homes and businesses are free to operate without restrictions. So we have a pathway out of our problems. When inflation eases and interest rates finally start falling, market sentiment is likely to rebound at speed.

Today, the FTSE 100 looks dirt cheap, trading at just 9.4 times earnings. The long-term average is 50% higher at around 15 times earnings. While I don’t expect the FTSE 100 to climb 50% in short order, there’s lots of scope for growth from today’s depressed levels.

I think the best way to approach the FTSE 100 is by purchasing individual stocks, rather than an index tracker. Plenty of stocks on the index have done brilliantly well over the last decade, even while UK blue-chips as a whole have underperformed.

I’ve been buying cheap shares

My homespun table lists the last five stocks I’ve bought, all of them dividend shares culled from the FTSE 100. All five look incredibly cheap, measured by their price-to-earnings (P/E) ratio.

Forecast yield Dividend Cover P/E ratio
Taylor Wimpey 8.5% 2.0 5.88%
Legal & General Group 9.6% 1.2 5.5x
Glencore 8.8% 1.4 3.8x
Lloyds Banking Group 6.2% 2.7 5.77x
Smurfit Kappa 4.1% 2.3 8.3x

There are some terrific yields there too. Dividends are never guaranteed, of course, and cover is lower than I’d like on a couple of them. I think Legal & General Group’s 9.6% dividend is secure. I’m less certain about Glencore‘s payout, but its shares were too cheap to resist.

I don’t know how long the current stock market downturn will last. Interest rates look set to stay elevated for longer than we’d like, so I’m not expecting a sudden rebound. August, September and October are often bumpy. That’s fine by me, it gives me more time to buy shares at today’s lower prices.

I wouldn’t rule out a rally before the end of the year as inflation (hopefully) subsides and investors look forward to a brighter 2024. As ever, there are no guarantees. But even if the FTSE 100 does struggle to deliver growth, my portfolio of cut-price dividend shares should still give me a terrific passive income stream for years.

The post The stock market dip may be my once-in-a-decade chance to buy cheap FTSE 100 dividend shares appeared first on The Motley Fool UK.

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Harvey Jones has positions in Glencore Plc, Legal & General Group Plc, Lloyds Banking Group Plc, Smurfit Kappa Group Plc and Taylor Wimpey Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.